President Donald Trump’s choice to lead the Federal Reserve needs to turn around America’s economy — but his surprising problem is Trump himself.
“The high-wire act starts before Warsh even has the job,” wrote The Wall Street Journal’s Nick Timiraos on Monday about Kevin Warsh, who Trump has appointed to replace the incumbent Jerome Powell. “Warsh secured the nomination by convincing Trump he shares the president’s view that the Fed should be cutting rates. At his Senate confirmation hearing Tuesday, he can reaffirm that case—at a moment when the Iran war has turned economic conditions against it—or begin, carefully, to distance himself from it.”
He added, “Air cover from Treasury Secretary Scott Bessent, who last week said he understood why the war had made the Fed hesitant to cut, might have helped Warsh. But Trump publicly overruled Bessent one day later, saying he didn’t agree.”
In the end, Timiraos does not dispute that Warsh has ambition and could in theory thread the needle between Trump’s rhetoric and financial conventional wisdom.
“He says the Fed talks too much about the near-term path of rates and leans too heavily on backward-looking data,” Timiraos wrote. “He also says it plays too large a role in overnight lending markets after expanding its footprint during the 2008-09 financial crisis. Whether this will matter to the White House if rates aren’t coming down is another matter.”
The New York Times has also expressed reservations about Warsh. While they wrote Warsh “looks great on paper” and has “many admirers both on Wall Street and in Washington,” he has a “credibility problem” because of Trump’s demand that Warsh, unlike Powell, cut interest rates.
“Is Mr. Warsh committed to Fed independence and to fighting inflation?” the Times asked, also noting that Warsh warned against interest rate cuts during the greater economic crisis of 2008-2009. “But in recent years, Mr. Warsh has sounded less worried about inflation and more worried about pleasing Mr. Trump. In 2018, during Mr. Trump’s first term, Mr. Warsh went to bat for the president, arguing that the central bank should extend the stimulus campaign he had once opposed. Since Mr. Trump’s return to office last year, Mr. Warsh has resumed his advocacy for easy money.”
Catherine Rampell, an economics journalist, told conservative website The Bulwark earlier this month that Warsh’s reputation as an “inflation hawk” may run aground of Trump’s personality.
“The person that Donald Trump wants to appoint to succeed Jerome Powell is this guy, Kevin Warsh, who his entire career was known as an inflation hawk, basically wanted tighter monetary policy,” Rampell told The Bulwark’s Andrew Egger on Wednesday. “But lo and behold, [he] has changed his tune just in time to accept this nomination. And now he wants looser monetary policy, i.e. the lower interest rates that Donald Trump just coincidentally also happens to want.”